tv Bloomberg Real Yield Bloomberg May 4, 2019 2:00am-2:31am EDT
scarlet: i'm scarlet fu, this is bloomberg etf iq, where we focus on the access, risks, and rewards offered by exchange traded funds. ♪ fresh off apple's earnings, shorthand for tech. is qqq a proxy for the best-performing stock of the year? our guest joins us to discuss how his clients are using funds. get schooled on fees. the case for why teacher retirement funds would benefit from a shiift to low-cost passive. and betting on 5g. we take a deep dive in an etf betting in and around the next mobile network.
whether you embrace or fear etf's, there is no getting around their influence. flows often serve as an indicator for bigger shifts in market sentiment. eric balchunas is here to show us what he's been seeing. again shades of 2017. ,eric: we are calling it back to 17. one missing puzzle piece is tech, but it's back. a lot of the usual suspects appear, s&p, the dow, that is all bullish. let's look at tech in particular and see what has been going on the past week. are we seeing a bigger move here? the answer is yes. $600 million in a week is still good. still negative to date, but when we look at one week flows, we see a dozen products of all straight -- strengths.
retail, traders, semiconductors, software, smart beta, cloud computing. you get my drift, there are a lot of different products taking in money as well. let's compare tech to other sectors. over the past month, april flows. $600 million was just tacked onto a bigger month, which is $2.1 billion this month, by far led the sectors. some outflows in march and january. some of that was due to that rebalance to people moving from tech to xlc. largely, this number could be understated. i forget what exhibit we are on, maybe number nine, of how this year looks very much like 2017, and tech leading the way is another example. scarlet: the evidence is piling up your -- piling up. let's bring in dan draper, head of global etf's at invesco, as well as carillion a wilson, who covers all things etf for bloomberg. dan, how do you read this move into tech, is this an indication that people are back to chasing growth? >> growth is definitely a big part of the story. we just celebrated earlier this
year the 20th anniversary of the q's. post-credit crisis, it's been hard to find growth globally. international markets, emerging markets, the growth has been in the u.s.. but if you look at the q's and the aggregate of the constituents, those constituents in the nasdaq 100 have invested twice as much in 2018 in r&d than the broader s&p 500. if you look at percent of revenues, it has again doubled, just under 10% of revenues reinvested back into research and development. about half that amount for the s&p 500. scarlet: i'm glad you bring up the 20th anniversary. carolina, you discuss a product, the chilean broadcast -- podcast. qqq's are not necessarily what you think they are. >> a very important thing to remember is it was not built as a tech fund. it tracks the nasdaq 100, which tracks the 100 largest
nonfinancial companies. if you look at the exposure, it's interesting. at the height of the tech bubble, 80% allocation. it has since come down. we are now just above 40%. still gives traders access to those same names, which we will see a lot of activity around earnings season. as you pointed out, tech is the best performing year to date in terms of industry groups. we are seeing lots of activity with the q's trading around that. eric: we were debating whether to put that in a tech etf or not. how knowledgeable are clients about this holding, makeup of the q's? dan: it has evolved. if you look at companies, over the decades that have passed, they evolved into consumer discretionary, telecom services. even growth companies that now pay dividends, for example. there has been a huge evolution as these large tech leaders have become leaders of the economy, stock market.
scarlet: let's shift gears to smart beta. where invesco is a big innovator in that space. smart beta etf's coming off of their biggest year ever last year, which is notable, given it was a down year. what do you observe about how people are using smart beta? was this money leaving active in a down year, do smart beta offer more defensive? dan: a lot of the strategies have been around for more than three or four years building track records and you had the market dislocation in q4. a lot of fiduciaries who were normally rebalancing, trying to de-risk to some degree, when they were whipsawed back into the rally this year. rather than saying market cap weighted, i want to be tilted more to higher quality. maybe higher dividends. those have been important factors. eric: a smart beta etf has wiring.
that wiring is active. let's look at something you looked at, the momentum etf, an interesting bit of wiring that kind of messed it up a bit. >> we looked at the performance year to date based on some research. mtum has lagged the s&p 500 by 4% this year, has also underperformed a lot of the low vol names this year. there was that rebalancing at the end of january that pushed exposure away from tech and boosted exposure to health care. in hindsight, pretty bad timing for those sectors, but situations like this could rub salt in the wounds of investors that are frustrated with timing individual factors. does that carve the way for multifactor strategies? dan: as an investor, trying to understand the methodology of the index, not only constituents, but the
rebalancing and other nuances, because it's important. you can have a number of momentum etf's in the marketplace but they differ. the idea on multifactor is to bring together better diversification. as some factors are zigging, some are zagging. how can you put them together to give a better return to clients? what are you trying to accomplish in your overall portfolio? these tools can be helpful, if you understand and use them the right way. scarlet: let's talk about a theme that has been very consistent over the last couple of months. another week, another round of fee cuts, this time from vanguard. eric: people thought the fee war was over, but this has been pretty intense. people will it on the -- people will you mail me and say, where will this go, what will happen to our industry? invesco has been doing a lot of
acquiring, some people say consolidation. where will the industry be in 10 years? dan: with invesco's strategy, we have to offer all capabilities to clients, active, passive, alternatives. then we need to be able to deliver them, whether it is an etf, mutual fund, or managed account. in the current world, scale in things like etf's matter a lot. being able to understand that scale brings benefits to clients. you can have more investment in your systems to manage the assets better, reduce tracking error. generally deliver a better client experience. this has been the commitment of our senior management team, to find those assets that really enhance the experience ultimately for the client. as a global firm, source acquisition really helped us get to scale in europe. guggenheim gave us a great foundation for that.
scarlet: thank you for that. full disclosure, invesco is a sponsor of "etf iq." coming up, why the teachers retirement savings plan should embrace passive funds. and here is a look at one etf trend that caught our eye this week. investors taking note of the longest streak for financials since 2010. you can find this chart and all of our other charts on the bloomberg at gtv . this is "etf iq." ♪ scarlet: i'm scarlet fu.
, the acquirers fund is in. vig will go 130% long companies classified as undervalued, and 30% short in the most overvalued and weak stocks. step two, the launch. the senior loan etf began trading, actively managed. leveraged loans with a target towards strong and undervalued credit. for some, the final stage is liquidation. the portfolio fund closed this week. they invest in companies supporting equality for lgbt employees. assets reached a peak of $23 million. it is time to get passive aggressive, where we track the shots in the battle between passive and active investing. driving that tension is the disparity in cost. let's talk about the fees teachers are subjected to in their retirement plans. dina and tony isola, representatives of ritholtz wealth management.
welcome. when it comes to defined contribution retirement plans, we are familiar with the 401k, but there is also the 403(b) that teachers use. you call it the land that time forgot. dina, why they are problematic? >> unlike the 401k, where the employer has a fiduciary responsibility to that the investment, 403(b)'s don't have that requirement. unfortunately, many teachers are not aware of that. they think that like all of their other benefits, this happens to be a great benefit, but if you don't know what you are looking at and you don't know how to compare the fees, it is a landmine. the pricing is such that it is almost like, back into the 1970's, where people are paying 2% for annuities, surrender fees, or paying front and sales charges of 5% with a 1% mutual fund fee, which is unheard of nowadays, where you can have such a low-cost option.
scarlet: a lot of teachers are pitched on variable annuities. why are they so bad? you were pitched some of these items as a teacher. how well did you understand these products? >> before i was a teacher, i was a foreign exchange trader, so i kind of knew. teachers would come up to me with their retirement stuff because they knew i knew something about finance. i would say, why would you put money into this product? basically it is the most expensive way in the world to own a mutual fund. it is inside a wrapper and you are paying 1% or more for what they call insurance. let's say you invest when you are 25 years old. you are buying insurance that what you put in will not be less when you take it out. why in god's name would you be investing in the markets over a 30-year period if you think you need that insurance? they add all of these bells and whistles to these products and nobody understands it.
we could also mention, you asked earlier, these are all individual contracts. and schools could have literally 60 to 70 vendors. each having hundreds of choices. if you had this in your plan, it would turn into the battle of winterfell, because he would go crazy. i know mike bloomberg would never do that, but my point is, it is horrific. scarlet: it is paralyzing, the options out there. what is the solution, do you move 403(b) assets into indexed funds? >> the first thing is education. a lot of this business is predicated on the fact that teachers are ignorant of what their options are. unless they know how to look at their options and make sure they are picking a low-cost option, that is the main issue to start with. just understanding their fees. single contracts are certainly a
large part of the issue, as tony mentioned. there is not that bargaining power. >> why would you have a 401(k) plan and 403(b) plan with completely different rules? it makes no sense. the principle is to accumulate wealth for your retirement, correct? how could you accumulate wealth if you are paying 3% or 4% in fees? it is virtually impossible after inflation. i will give you a great example. there was a teacher, her and her husband started at the same time, putting similar amounts of money into similar asset allocation. after 10 or 15 years, there was a massive discrepancy in the sums they had accumulated over that time. she brought us the paperwork and i said, i am not an investing genius, but if you are paying 3%, and he is paying 50 basis point or whatever, your husband will have more. she has now become one of our biggest advocates because we explained it to her in a common way.
scarlet: you recently went to congress appealing for a solution. how do you fix this legislatively, from a policy point of view? >> in a perfect world, that would be great, but i just don't understand whether or not that would ever come to pass, to be honest. it is a very involved process. we cannot even get the fiduciary rule passed on retirement accounts. i think that would be a really big step in the right direction, if people recommending investment products to people have to do what was in their best interest. unfortunately, that is not at the heart of these, and that is evidenced by such high fees. scarlet: such a basic concept. dina and tony isola, thank you. coming up, we introduce you to the etf with the ticker shag. the fund with the austin powers-connected name is probably different than what you might expect. this is bloomberg. ♪ scarlet: i'm scarlet fu.
our guest is here to talk about the effort to do that. eric balchunas will give us the drill down into the new fund. eric: this is the defiance etf, we refer to it as the 5g etf. companies moving to this faster network, better service. the way this works, the etf breaks down into tiers. a little complicated. half of the names are in a radio access equipment, 20% in mobile operators, a third tier for service providers, even some reits. it is designed to capture this trend the best it can. some of the companies that do this are very big. $80 million, pretty big for a month-old thematic etf. 30 bits is also cheap. let's look at the holdings. i thought it would be mostly telecom but it is only 14% telecom. most of the holdings are in tech hardware, 50%.
22% semiconductors. it doesn't really look like any other etf. let's compare this to xlc, the communications etf, which i thought was a natural look for a mainstream etf. obviously a lot smaller but big. relatively cheap to that. we look at these, only 14%. active share to xlc is 94. this is how well and original it captures a theme. a little lower than something like cannabis, but these companies in here do so many things. this is an original play. it comes down to whether you think 5g is the future, and whether or not this captures that. scarlet: i like the way you put that. still with us is paul. your fund gets 80% of its weighting in u.s. companies. why isn't there more exposure to china? it is those companies that everyone is so concerned about getting an edge in 5g.
>> thank you for having me on your program, i appreciate the opportunity. one of the problems with huawei, it is privately held. when we set this product up, we wanted to offer at a reasonable cost. we have international securities that trade adr's locally. any time you get into foreign markets, the cost of trading goes up. scarlet: that would explain why vte is not there. >> another one we are missing, samsung. many people have it inside of their portfolios, so not a huge opportunity, but if they have an adr effort, that is one we might look at. scarlet: when might you add it? >> they don't offer that. scarlet: i know cost is not the end-all to etf due diligence, but 30 basis points is pretty cheap. robo is 95 basis points. eric: two things stuck out. is this like sprayng blackrock repellant on it? >> there were no real institutions lined up before
hand. this is a lot of organic growth. when we launched this product, we wanted to be aggressive with our price, offer a price point that was attractive. often times when you hear the word thematic, you think of trade. the 5g rollout is in such an infancy, this will be a several year buildout. we don't look at this as a trade but an investment. scarlet: what is your outlook for 5g? >> there are 12 cities across the u.s. where 5g capabilities have been rolled out. the reality is, second half of the year, you will see cell phone technology with 5g being offered. it is really only 2020 and beyond that you'll be able to see it on the consumer scale. scarlet: you also have the quantum computing etf, i don't know what that is.
normally i know what etf's do, i had to look it up. can you talk about what that is, why you want to invest in it? >> we set this company up to be the etf for the next generation. we want to think about technologies, investments that might be in the early innings, but will be transformative in the years to come. quantum computing is part of that. we try to set it up in a way that captures quantum computing leaders, as well as machine learning companies. it is a next generation type of computing etf. we feel over the next several years it will be a good investment. scarlet: a common thread to your etf's. thank you, paul. the etf industry has something for everyone, and in this week's there is an etf for that, we highlight a fund that would strike a chord with austin powers fans. yeah, baby. the wisdom tree u.s. short-term aggregate bond etf gets our
attention with the ticker shag. playing off of the sh in short-term and the ag in aggregate. this is smart made a fixed d launched two years ago with $5 million in assets. thanks to the catchy ticker and rising rates, the fund has $80 million in assets. tracking a similarly named bloomberg barclays index, it holds about 425 investment grade bonds with a duration of less than five years. this helps to offset interest-rate risk. almost all the holdings are weighted in the u.s. with more than half corporate, and a quarter treasuries. on an individual basis, the government bonds receive the biggest weight. these allocations offer greater yield than a typical short-term bond fund. when compared to the bloomberg barclays ag index, shag has trailed since its inception. it has an expense ratio of 12 basis points and gets a green light in the bloomberg traffic
♪ back -- ren buffett the oracle of omaha landed $10 million in financing as occidental snapped up anadarko. the political crisis in venezuela deepens, threatens to disrupt more oil production. the impact. let's get ready to export. we spoke to the ceo of enterprise products partners, who says almost all of the additional premium crude this year will go to international markets. ? alix: i'm alix steel. welcome to "bloomberg commodities edge."